Which of the following statements is true of the current ratio? The larger the current ratio, the harder it is for the firm to pay its short-term debts. A current ratio below 1.0 signifies a company's inability to pay its short-term liabilities with its current assets. Current ratio is classified under the leverage ratio. Current ratio is computed by dividing the firm's current liabilities by its current assets.

Answer:

Financial assets are instruments that represent a claim to the economic benefits of an entity. They can be categorized into various classes based on their nature and purpose. Two common categories of financial assets are "passive investments" and "loans and receivables." I'll explain each category and their measurement under both IFRS (using IFRS 9) and ASPE (Accounting Standards for Private Enterprises).

1. Passive Investments:

Passive investments are financial assets that an entity holds to earn returns on the investment, such as dividends, interest, or capital appreciation. They are typically acquired with the intent of holding them for the long term rather than actively trading them.

Measurement under IFRS 9:

Under IFRS 9, passive investments are classified into two main categories:

a. Fair Value Through Other Comprehensive Income (FVOCI): Passive investments can be designated at initial recognition to be measured at fair value through other comprehensive income. Changes in fair value are recognized in other comprehensive income, and only accumulated gains or losses are recognized in the income statement upon derecognition or impairment.

b. Fair Value Through Profit or Loss (FVTPL): Alternatively, entities can choose to measure passive investments at fair value through profit or loss. Changes in fair value are recognized directly in the income statement.

Measurement under ASPE:

Under ASPE, the equivalent category to FVOCI is "Available-for-sale financial assets," and the equivalent to FVTPL is "Fair value through profit or loss." The measurement and recognition principles are generally similar to IFRS, with some differences in terminologies and specific requirements.

2. Loans and Receivables:

Loans and receivables are financial assets that involve contractual rights to receive cash or another financial asset from another entity. They arise from lending money, providing goods or services on credit, or holding accounts receivable.

Measurement under IFRS 9:

Under IFRS 9, loans and receivables are initially measured at their transaction price, which usually includes transaction costs. Subsequently, they are measured at amortized cost using the effective interest rate method, unless they are determined to be impaired.

Measurement under ASPE:

ASPE has a category called "Loans and receivables," which is similar to IFRS's classification. Loans and receivables under ASPE are also initially measured at the transaction price, including transaction costs, and subsequently measured at amortized cost using the effective interest rate method, unless they are impaired.

It's important to note that while both IFRS and ASPE have similarities in the classification and measurement of financial assets, there might be some differences in terminology, presentation, and specific requirements. Additionally, the standards and their interpretations may change over time, so it's crucial to refer to the most up-to-date versions of IFRS 9 and ASPE for accurate information.

Explanation:

Final answer:

The different categories of financial assets under IFRS and ASPE are financial assets at fair value through profit or loss, financial assets at amortized cost, and financial assets at fair value through other comprehensive income.

Explanation:

Financial assets are resources that hold monetary value and can be classified into different categories based on their characteristics and purpose. Under International Financial Reporting Standards (IFRS) and Accounting Standards for Private Enterprises (ASPE), financial assets are categorized into three main groups: financial assets at fair value through profit or loss, financial assets at amortized cost, and financial assets at fair value through other comprehensive income.

Financial assets at fair value through profit or loss: These assets are held for trading purposes or are designated as such by the entity. They are measured at fair value, with changes in fair value recognized in profit or loss. Financial assets at amortized cost: These assets are held to collect contractual cash flows and are measured at amortized cost using the effective interest method. They include loans, receivables, and held-to-maturity investments.

Financial assets at fair value through other comprehensive income: These assets are neither held for trading nor held to collect contractual cash flows. They are measured at fair value, with changes in fair value recognized in other comprehensive income.

Under IFRS, the measurement of financial assets is primarily based on their classification. IFRS 9 provides guidance on the classification, measurement, and impairment of financial assets. ASPE, on the other hand, follows a similar approach to IFRS but with some differences in terminology and specific requirements.

Learn more about categories of financial assets and their measurement under ifrs and aspe here:

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